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Some Exceptions to the Law of Demand

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Law of demand is generally believed to be valid in most of the situations. However, some exceptions to the law of demand have been pointed out. One exception to the law of demand is associated with the name of the economist Torstein Veblen who propounded to the doctrine of conspicuous consumption. According to Veblen, some consumers measure the utility of a commodity entirely by its price, i.e., for them, the greater the price of a commodity, the greater it’s utility.

Diamonds are often given an example of this case. The diamonds are considered as prestige goods in the society and for the upper strata of the society the higher the price of diamonds, the higher the prestige value of them and, therefore, the greater utility or desirability of them. In this case, the consumer will buy less of the diamonds at a low price because with the fail in price its prestige value will go down.

On the other hand, when the price of diamonds goes up, their prestige value will go up and, therefore, their utility and desirability. As a result, at higher price the quantity demanded of diamonds by a consumer will rise.

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Another exception to the law of demand was pointed out by Sir Robert Giffin was observed that when the price of bread increased, the low-paid British workers early in the nineteenth century purchased more bread and not less of it, and this was contrary to the law of demand described above.

The reason given for this is that these British workers consumed a diet of mainly bread and when the price of bread went up they were compelled to spend more on given quantity of bread. Therefore, they could not afford to purchase as much meat as before. Thus, they substituted even bread for meat in order to maintain their intake of food. After the name of Robert Giffin, such goods in whose case there is a direct price-demand relationship are called Giffin goods.

It is important to note that when the rise in the price of a commodity, its quantity demanded increases and with the fall in the price of a commodity, its quantity demanded decreases, the demand curve will slope upward to the right and not downward.

There are some other exceptions to the law of demand which are only apparent and not genuine. In other words, these exceptions to the law of demand are false. One of the false exceptions relates to the changes in the exceptions of the people regarding prices of the commodities in the future. Suppose, the rainfall in India in any year does not occur in adequate quantity and there is widespread drought, the exception of the people will be-that the prices would rise in the future.

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Therefore, even if the prices of food-grains are higher at the present, they would demand greater quantities since they will be expecting that the prices in the future would be still higher. This is contrary to the law of demand, but in this case to apply the law of demand is not valid. This is because in this case the increase in the quantity demanded is not due to the rise in price but due to the rightward shift in the demand curve as a result of changes in the price expectations of the people.

Furthermore, statistical data regarding the quantities purchased of various goods reveal that larger amounts of them have been purchased at higher prices and smaller quantities have been purchased at lower prices over the course of the business cycle.

This is also apparently the violation of the law of demand but properly interpreted it does not contradict the law of demand, for this only shows that demands for many commodities increase in times of prosperity periods of the business cycles due to the increase in the incomes of the people, and the demands for the commodities decrease in time of the depression periods of the business cycles due to the fall in the incomes of the people.

Another false exception to the law of demand is found when a commodity is sold under two brand names whose prices greatly differ. It is often found than some people demand more of high-priced brand than of the low-priced, although they are almost identical. This author has seen that some of his friends buy more of ‘Supreme Lux’ having much higher price than ‘Lux’ having a low price even though the two are of almost the same quality.

However, this is not a real exception to the law of demand. That is because those who buy more of high-priced brand think that the high- priced brand is different from and superior to the low-price brand. Therefore, for analyzing the nature of demand for these brands they should be regarded as two different commodities.